Middle East war lifts VLCC rates, spurs global replacement orders
Freight rates and charter fees for very large crude carriers (VLCCs) that transport crude oil are soaring as the Hormuz Strait remains closed for an extended period due to the Middle East war and as Iran-aligned Houthi rebels attack Saudi Arabia. With the VLCC market booming, there is an outlook that shipping companies could increase ...
The ongoing Middle East conflict has caused the very large crude carriers (VLCCs) market to soar, prompting shipping companies to consider increasing orders for new vessels to replace aging ones. These massive oil transport ships have seen their daily rates jump to $665,000, a 72% increase compared to the previous week and a record high. In comparison to March, just after the U.S.-Iran war began, VLCC rates have risen by 72%.
The crisis has also led to a sharp rise in one-year charter rates for VLCCs, which have increased from approximately $130,000 per day to over $210,000 per day. With fewer available crude carriers, the volume of crude passing through the Hormuz Strait has returned to an 80% of pre-war levels. However, shuttle transport and ship-to-ship transfers have made voyages longer, leading to vessels circumventing the Cape of Good Hope at the southern tip of Africa. This has increased turnaround times and boosted VLCC demand.
As a result, VLCC operators are experiencing improved financial results. At DHT Holdings, a crude-only tanker company, second-quarter adjusted net revenue rose 175% compared to the same period last year, reaching $255 million. Net profit increased by 254% to $198.3 million. The global VLCC fleet is estimated to be around 850 to 910 ships. The average age of the fleet is 13.5 years, with ships older than 25 years typically not deployed in commercial service due to higher inspection, repair, and insurance costs.
Major shipyards in Korea and China, such as Hanwha Ocean and Samsung Heavy Industries, have their construction slots filled for the next four years, indicating that VLCC replacement orders are expected to increase as vessels older than 15 years are targeted. According to a report by Clarksons Research, 42.6% of the VLCC fleet consists of ships 15 years and older.
Analysts are predicting that VLCC replacement demand could reach about 130 ships, considering the cost-effectiveness of leasing a VLCC for one year compared to newbuilding investments.
Written by urgent.news from Hellenic Shipping News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
